US crude oil stocks posted a decrease of 3.9 MMBbl from last week. Gasoline inventories decreased 4.6 MMBbl while distillate inventories increased 0.4 MMBbl. Yesterday afternoon, API reported a crude oil draw of 2.6 MMBbl alongside a gasoline draw of 5.8 MMBbl and a distillate build of 0.19 MMBbl. Analysts were instead were expecting a crude oil build of 2.7 MMBbl. The most important number to keep an eye on, total petroleum inventories, posted a large decrease of 10.2 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.
US crude oil production decreased 100 MBbl/d last week, per the EIA. Crude oil imports were down 0.26 MMBbl/d last week, to an average of 6.7 MMBbl/d. Refinery inputs averaged 16.0 MMBbl/d (30 MBbl/d more than last week), leading to a utilization rate of 87.6%. The sizeable crude oil and total petroleum stocks inventory draws triggered the price increase this morning. In addition to bullish report by EIA, prices are also supported by declines in Venezuelan crude exports and expectation of deeper supply cuts by Saudi Arabia. Prompt-month WTI was trading up $1.07/Bbl, at $57.94/Bbl, at the time of writing.
Prices have been steadily increasing after their brief fall on Friday as a result of weakness in job creation in the US during February, reports showing the lowest Chinese factory activity in three years, and Chinese exports in February falling nearly 21% from last year, all of which increased worries of a slowdown in global economic and energy demand growth. The news that Libya’s El Sharara oil field is restarting operations to bring back 300 MBbl/d also supported the bearish sentiment and kept the pressure on prices heading in to the weekend.
Monday brought some bullish news as Saudi Arabia announced their voluntary plans to cut supply further to bring an end to the global supply glut in order to bring a balance to the market to support higher prices. Saudi Arabia’s oil minister stated that the Kingdom is planning to cut its oil exports to below 7 MMBbl/d while keeping its output below 10 MMBbl/d to diminish and alleviate the supply glut. The Joint Ministerial Monitoring Committee, which monitors compliance levels of OPEC and non-OPEC countries, is scheduled to meet in Azerbaijan on March 18. Saudi Energy Minister Khalid al-Falih said it may be too early to change the production curb agreement during this meeting, but it will be discussed during the group’s next meeting in June. From the statements to date by al-Falih, the market seems optimistic that supply cuts could be extended further, which will potentially be led by Saudi Arabia. In addition to Saudi Arabia’s stance and willingness to eliminate the supply glut, the recent situation in Venezuela also gave support to prices. Exports from Venezuela were cut due to a country-wide power outage, which resulted in the shutdown of the main crude export terminal and processing complex. Although this is a temporary shutdown, the current turmoil in Venezuela makes it hard to assess when the country can fully resume operations again.
As the market takes a more bullish stance with the ongoing OPEC-led supply cuts, the worsening situation in Venezuela, and Saudi Arabia’s comments on possibly extending the supply cuts, any significant price gain will be limited due to continuously increasing US production and the uncertainty around US China trade negotiations. The US production is showing no signs of slowing down and will increase further in 2019 as many of the operators are projecting double-digit growth rates for 2019, which could potentially offset the supply cuts by OPEC and non-OPEC producers. The ongoing US China trade negotiations are another risk for prices, as trade talks continue between the world’s two largest economies but seem to get nowhere. Failure in reaching an agreement could mean a huge threat to already concerning global economic and energy demand growth, which could potentially pressure prices further.
The negative news on Friday sent prices down over $2.00 and challenged the commonly watched 20-week moving average at $54.16/Bbl before finding solid support and rallying. Despite the bearish global economic data, prices closed last week higher than the previous week’s $55.86/Bbl, at $56.07/Bbl. The major area for selling remains high from last November, $57.96/Bbl, with a break above likely to find $60.00/Bbl. Moving forward, Drillinginfo expects that the market will continue to trade on the news around the trade talks and the potential for an extension of the supply cuts. Further indications of weakness in global demand will likely send prices back to the 20-week moving average ($54.16/Bbl currently). A breakdown through this area will lead prices to the commonly traded 50-day moving average at $51.84/Bbl.